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What Should Government Do about Uber Drivers and the Gig Economy?
From the Wall Street Journal: “Uber has warded off a serious legal threat to its highflying business model with a settlement that may end the debate over whether its drivers should be counted as independent contractors or employees.”
OK, so Uber will continue to classify drivers as contractors and will pay drivers up to $100 million — notes the WSJ — as well as a) revise its practice of deactivating low-rated drivers with little warning, b) explain its decisions to terminate drivers, and in most cases give warnings before doing so, and c) allow drivers to post signs in their cars soliciting tips from riders.
Yet the overall status of “gig workers” is still in dispute. Again, the WSJ:
The settlement, if approved, doesn’t set a legal precedent and leaves the status of contract workers unclear. But it may deter similar lawsuits against the growing number of on-demand services that depend on a pool of freelance workers who clean houses, run errands and perform other menial tasks. Concerns over the status of gig workers have caused tech investors and entrepreneurs to become more cautious about on-demand businesses. Some startups such as home-cleaning service Homejoy have been unable to secure new funding and were forced to shut down, while others, such as grocery-delivery service Instacart and valet-parking app Luxe Valet have moved toreclassify some of their workers as employees.
This is the very definition of a dynamic and evolving sector of the economy — and probably an example of where government should take it slow to see how things shakeout. That is why I find at least initially appealing this idea from the Information Technology and Innovation Foundation:
A third way to begin reforming labor law for the gig economy would be to create a special exemption from many of the labor laws specifically for gig platforms. Platforms are unique enough that legislation could define them fairly precisely, making it clear whom the law covers and whom it does not. Despite their rapid growth, they are also a small enough part of the workforce that treating them differently would not upend the broader labor markets. An exemption, even if it lasted only 5 or 10 years, would give Congress a chance to experiment with the application of labor laws to a new century. The temporary nature could motivate firms to provide more services to their workers in order to persuade Congress to extend and broaden it. We could see whether companies are willing to create a more supportive and involved relationship with their workers in order to reduce turnover, improve quality, and enhance their public reputations. We could also see whether these attempts actually benefitted workers and raised their incomes or job satisfaction.
If the experiment were successful, it could be applied to a broader section of the temporary, part-time, and independent workforce. If it were not, it could be ended with little damage done.
How could such an exemption be created? One option is to state explicitly that no worker shall be considered an employee of a platform for the purpose of any labor law if the platform’s role is primarily to connect the worker with prospective clients for the purpose of performing a personal service or selling a good if 1) the workers have complete freedom in deciding what hours they will work, and 2) the workers are free to refuse individual work assignments. Companies would still be free to perform activities such as setting prices, handling payments, and vetting both workers and customers, on the rationale that these activities create value for both workers and consumers. An exemption would also allow companies to expand their support for workers without worrying about taking on the extensive legal liabilities associated with an employeremployee relationship.
Congress could see whether companies actually provide additional benefits to their workers once the threat of employee status was removed. If they did, workers would become much better equipped to shape their own careers. The most likely sources of value seem to be in tax planning and preparation, financial advice, insurance discounts, business loans and capital goods, and peer advice. Given the importance of finding and keeping good workers, it is likely that platforms would find it in their best interest to provide at least some of these services to their workers.
Another reason for experimentation rather than creating some hard new category of worker between employee and independent contractor: “The entire online gig economy might be mostly Uber.” Also, this would provide time to perhaps rethink the push to more generally mandate that business provide more worker benefits. As I have written:
Published in Culture, EconomicsThere is no free lunch here. Employer benefit contributions come out of worker wages. As Democratic economist Lawrence Summers wrote in a seminal but simple paper on the subject, “Mandated benefit programs can work against the interests of those who most require the benefit being offered.” For instance: One common criticism of employer provided health care is that workers pay two ways, through premiums and through wages that are lower than they would be otherwise. Similarly, most economists think that both the employer and employee shares of Social Security taxes are really borne by workers.
Why double down on such an approach, especially during a time of supposed wage stagnation? Let middle-class workers keep more of what they earn and make it easier for them to save their own dough to meet the ups and downs of life — as well as build wealth. Maybe even nudge them through mechanisms such as, say, auto-enrollment into retirement plans. And if some workers simply don’t make enough to save, then the rest of us should subsidize their earnings. And let the on-demand economy continue to mature and evolve and perhaps create new models for employer-employee relations.
For now, perhaps, policymakers should take a “do no harm” stance toward an emerging, innovative sector that is providing income and flexibility for many Americans.
Which government?
The federal government?
Nothing. The federal government should do nothing.
State and local governments?
Very little. Maybe enforcing similar insurance and/or vehicle maintenance requirements as are already imposed on taxi and/or limo operators.
Oh, also, reducing the regulation of taxis and limos, rather than increasing regulation of Uber services. That’d be good too.
To answer your headline question, the Federal government should sit down and shut up. It has absolutely nothing at all to say about what is, in its essence, entirely within each State’s individual police power and entirely without the Federal government’s police power.
From Pethokoukis’ cite [emphasis added]:
Or not. Civil tort extortion is a growing industry; the WSJ, in the same issue, identified one such class action suer, and she has given no indication of backing off. After all, with this settlement, she still got her cut.
Again from his cite:
Sure. Because we don’t already have enough Federal laws of any sort, much less labor laws. Our Federal code just isn’t Byzantine enough; too many tort lawyers can’t make a decent living.
Eric Hines
This suggestion is somewhat redundant in that it pretty much reflects existing law on the subject, although perhaps it would make the entire process neater and less bureaucratic. Whether one is an independent contractor or an employee depends on the degree of control maintained by the business in question. There normally are a number of factors used to decide how much control exists.
I haven’t followed Uber’s travails in California closely, but can understand how that state would unfortunately take an overly strict view of Uber’s policies. Nonetheless, Uber, and others in the “gig economy,” need to recognize that there’s a measure of “can’t have cake and eat it too” in terms of control if they want independent contractors rather than employees.
Misthiocracy and Eric Hines have said it all.
The Feds should not be remotely involved in this.
Nor should the Staties and Locals.
Employment should be a matter between owner and worker.
While a worthy libertarian approach, this does not reflect reality (unfortunately, if that helps). We have passed generations where employment is not such a matter, and there’s ample evidence that it will never again be such a matter. I bow to the intellectual arguments made by the Richard Epstein’s of the world, but Uber and its like need to deal in the real world.
What Hoyacon said.
Just how much “subsidizing” am I expected to do?
All this proposal will do is allow somebody who only works part-time to make as much as someone who works full-time. I’d be inclined to quit and go part-time in the gig economy if I knew I could make full-time pay thru taxpayer subsidies. Golf during the week and not just on the weekends—Woo Hoo!
The gig economy offers insufficient opportunity for political graft. Therefore it must be crushed.
Seawriter
No.
No.
This is hardly something new. For decades, people and businesses have been trying to dodge the serious costs of employment regulations, ranging from taxes to anti-discrimination provisions.
I don’t like the idea of giving Uber and others a free pass, which gives them an unfair advantage compared to other businesses. Better to look into repealing the entire mess.
Richard Epstein is a great writer and speaker on this issue.
Two things. First, using a term like ‘unfair’ to describe the advantage gained by Uber or similar activities is a little on the silly side since the entire government involvement in agreements entered into by private parties exhibits no sense of fairness, since it is there primarily to increase government revenues and/or power. Second, how will public sentiment to repeal government involvement be moved without something to demonstrate what is being taken from them?
I admire your succinctness.
I disagree.
As to your first point, I think that it is unfair to exempt one business, or set of businesses, from onerous government regulations, while leaving competitors subject to those regulations.
As to your second point, I think that enforcement of onerous and probably unwise regulations is precisely the thing that will move public sentiment toward repeal.
Don’t hold your breath.
“Unfair” in the sense that mugging only some passers-by, instead of all passers-by, is unfair.
I like the idea of pandering to these trendy platforms (Uber, AirBnB) as Trojan horses to a wider repeal of labour and other regulations. Just widen the exceptions until it covers everyone, and use the rhetoric of ‘progress’ and ‘fairness’ while doing so. We’re not ‘deregulating’, we’re ‘supporting innovation’!